Arbitration and Conciliation Act, 1996 – ss.8 and 45 – First Respondent entered into four agreements in regard to commission of a Photovoltaic Solar Plant – Two agreements dated 01.02.2012 were with M/s. ‘JI’; one agreement dated 05.03.2012 with appellant no.2 and another agreement dated 14.03.2012 with appellant no.3 – All the agreements contained arbitration clause except agreement dated 05.03.2012 – Dispute arose between the parties – First respondent alleged that appellant no.3 defaulted in payment of rent and appellant no.2 committed fraud by inducing first respondent to purchase the Photovoltaic products by investing huge amount – Appellants sought for reference to arbitration u/s.8 of all four agreements as they were inter-connected – Single Judge of High Court dismissed the application u/s.8 and held that agreement dated 14.03.2012 cannot be treated as mother/principal agreement and other agreements as ancillary agreements and further that since there was criminal complaint against the appellants, they cannot be referred to arbitration – Division Bench of High Court held that main agreement dated 05.03.2012 did not contain an arbitration clause, thus the matter cannot be referred to arbitration – On appeal, held: All the four agreements were inter-connected – It was a case where several parties were involved in a commercial project executed through several agreements/contracts – In such a case, all parties can be covered by the arbitration clause in the main agreement dated 14.03.2012 – Insofar as allegations of fraud are concerned, it is only where serious questions of fraud are involved, the arbitration can be refused – In instant case, the allegations cannot be said to be so serious to refuse to refer the parties to arbitration – Arbitrator appointed can examine the allegations regarding fraud – All the four agreements and the parties thereon referred to arbitration.
Allowing the appeal, the Court
HELD: 1. In a case like the present one, though there are different agreements involving several parties, it is a single commercial project namely operating a 2 MWp Photovoltaic Solar Plant. Commissioning of the Solar Plant, which is the commercial understanding between the parties and it has been effected through several agreements. The agreement – Equipment Lease Agreement (14.03.2012) for commissioning of the Solar Plant is the principal/main agreement. The two agreements of First respondent with ‘JI’ (i) Equipment and Material Supply Contract (01.02.2012); and (ii) Engineering, Installation and Commissioning Contract (01.02.2012) and the First Respondent Sale and Purchase Agreement with appellant no.2 (05.03.2012) are ancillary agreements which led to the main purpose of commissioning the Photovoltaic Solar Plant by Appellant No.3 (Lessee). Even though, the Sale and Purchase Agreement (05.03.2012) between First Respondent and appellant no.2 does not contain arbitration clause, it is integrally connected with the commissioning of the Solar Plant by appellant no.3. ‘JI’, even though, not a party to the suit and even though, appellant no.2 and appellant No.1 are not signatories to the main agreement viz. Equipment Lease Agreement (14.03.2012), it is a commercial transaction integrally connected with commissioning of Photovoltaic Solar Plant. Be it noted, as per clause(v) of Article 4, parties have agreed that the entire risk, cost of the delivery and installation shall be at the cost of the first respondent (Lessor). What is evident from the facts and intention of the parties is to facilitate procurement of equipments, sale and purchase of equipments, installation and leasing out the equipments to Dante Energy. The dispute between the parties to various agreements could be resolved only by referring all the four agreements and the parties thereon to arbitration. [Para 21][1019-E-H; 1020-A-C]
2. All the four agreements are inter-connected. This is a case where several parties are involved in a single commercial project (Solar Plant at Dongri) executed through several agreements/contracts. In such a case, all the parties can be covered by the arbitration clause in the main agreement i.e. Equipment Lease Agreement (14.03.2012). [Para 22][1020-D-E]
3. In the present case, both parties have consciously proceeded with the commercial transactions to commission the Photovoltaic Solar Plant. The first respondent has proceeded to procure the materials, entered into agreement with ‘JI’ for engineering, installation and commissioning and the sale and purchase agreement with appellant no.2, were all the conscious steps taken in the commercial understanding to commission the Solar Plant. Even though ‘JI’ and appellant no.2 are not parties to the main agreement-Equipment Lease Agreement (14.03.2012), all the agreements/ contracts contain clauses referring to the main agreement. It is the duty of the Court to impart the commercial understanding with a “sense of business efficacy” and not by the mere averments made in the plaint. The High Court was not right in refusing to refer the parties on the ground of the allegations of fraud levelled in the plaint. [Para 33][1026-B-D]
4. It is only where serious questions of fraud are involved, the arbitration can be refused. In this case, as contended by the appellants there were no serious allegations of fraud; the allegations levelled against appellant no.2 is that appellant no.1 misrepresented by inducing the respondents to pay higher price for the purchase of the equipments. There is a criminal case registered against the appellants in FIR before the Economic Offences Wing, Delhi. The appellant no.1 has filed Criminal Writ Petition before the High Court of Delhi for quashing the said FIR. The said writ petition is stated to be pending. Suffice to say that the allegations cannot be said to be so serious to refuse to refer the parties to arbitration. In any event, the Arbitrator appointed can very well examine the allegations regarding fraud. [Para 34][1026-E-G]
5. Main agreement- Equipment Lease Agreement
(14.03.2012) for leasing and commissioning of Solar Plant contains arbitration clause (Clause 29). Other three agreements-two agreements between first respondent and ‘JI’ (01.02.2012) and Sale and Purchase Agreement (05.03.2012) between first respondent and appellant no.2 are integrally connected with the commercial understanding of commissioning the Solar Project and to resolve the dispute between the parties, they are to be referred to arbitration. The order of the High Court declining to refer the parties to arbitration cannot be sustained and is liable to be set aside. The four agreements namely:- (i) Equipment and Material Supply Contract (01.02.2012) between first respondent and ‘JI’; (ii) Engineering, Installation and Commissioning Contract (01.02.2012) between first respondent and ‘JI’; (iii) Sale and Purchase Agreement (05.03.2012) between first respondent and appellant no.2; and (iv) Equipment Lease Agreement (14.03.2012) between respondent and appellant no.3 and the parties thereon are referred to arbitration. [Para 35][1026-G-H; 1027-A-C]
6. As per the terms of Equipment Lease Agreement (14.03.2012), appellant No.3 has to pay lease rentals of Rs.13,67,500/- for the month of March, 2012 and with effect from April, 2012 to pay lease rentals of Rs.28,26,000/- per month for a period of fifteen years. Respondents has submitted that appellant No.3 has not paid the rentals as per the terms and conditions of Equipment Lease Agreement and has also drawn attention that appellant no.2 has transferred 99.99% of its shares and appellant no.1 has only one share (0.01%). The interest of the respondents is to be protected till the matter is resolved by the arbitrator by directing the appellants to pay the arrears of lease rent and also to pay the future lease rent for the equipments at the rate of Rs.28,26,000/- per month. [Para 36][1027-C-D, F-G] A. Ayyasamy v. A. Paramasivam and others (2016) 10 SCC 386 : [2016] 11 SCR 521 – relied on.
Sukanya Holdings (P) Ltd. v. Jayesh H. Pandya and another (2003) 5 SCC 531 : [2003] 3 SCR 558; Chloro Controls India Private Limited v. Severn Trent Water Purification Inc. and others (2013) 1 SCC 641 : [2012]
13 SCR 402; Arundhati Mishra (Smt) v. Sri Ram Charitra Pandey (1994) 2 SCC 29 – referred to. Justice R.S. Bachawat’s Law of Arbitration and Conciliation, Sixth Edition, Vol. I (Sections 1 to 34) at page 695 published by Lexis Nexis) – referred to.
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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